Fri January 17, 2014

The Birth Of The Minimum Wage In America

In 1895, legislators in New York state decided to improve working conditions in what at the time could be a deadly profession: baking bread.

"Bakeries are actually extremely dangerous places to work," says Eric Rauchway, a historian at the University of California, Davis. "Because flour is such a fine particulate, if it gets to hang in the air it can catch fire and the whole room can go up in a sheet of flame."

New York passed a law called the Bakeshop Act. It didn't set a minimum wage — the minimum wage didn't exist yet in the U.S. — but it limited working hours and required that bakeries be kept clean.

The Supreme Court ruled the law unconstitutional. Bakers and their employers had the right to make any agreements they wanted about work hours, the court found. The Bakeshop Act, according to the court, interfered with individuals' right to enter into a contract.

The ruling suggested there was no way the Supreme Court of the time would allow anything like a minimum wage.

Several decades later, Franklin D. Roosevelt was president. To fight the Depression, he wanted to put money in people's pockets. "If all employers will work together to shorten hours and raise wages, we can put people back to work," he said.

Roosevelt wanted businesses to do this voluntarily. To that end, the administration created the National Industrial Recovery Act, which Congress passed in 1933.

Businesses that agreed to shorten hours and raise wages could hang special signs in their windows that showed a blue eagle logo and the words "doing our part."

Perhaps more powerful than the sign were the perks that went along with agreeing to offer higher wages: Participating businesses were allowed to form cartels and set prices. (At the time, the country was suffering from deflation, with prices and wages plunging.)

But the blue eagle was no match for nine men in robes: The Supreme Court unanimously struck down the law.

After Roosevelt was re-elected by a landslide in 1936, he tried to pack the court — to pass a law that would let him appoint additional justices. That effort failed.

But one of the court justices switched sides, and in 1937 the court upheld the right of Washington state to have a minimum wage.

The next year, FDR pushed through Congress the Fair Labor Standards Act, which contained a kind of minimal minimum wage.

The act, "applying to products in interstate, ends child labor, sets a floor below wages and a ceiling over the hours of labor," Roosevelt said at the time.

Rauchway says it was more of a political victory than an intellectual one. And the nation is still divided over it today.

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Transcript

RENEE MONTAGNE, HOST:

The minimum wage is shaping up to be a hot political issue this year. President Obama says he wants to raise it. So we're going to take time today to look back at how the U.S. got a minimum wage in the first place.

Here's David Kestenbaum, with our Planet Money team.

DAVID KESTENBAUM, BYLINE: For much of American history, there was no minimum wage. And to understand the obstacles it faced, consider this story. In 1895, the state of New York decided it wanted to improve working conditions in what, at the time, could be a deadly profession: baking bread.

RAUCHWAY: Flour is such a fine particulate. If it gets to hang in the air, it can actually catch fire, and the whole room can go up in sort of a sheet of flame.

KESTENBAUM: New York passes a law called the Bake Shop Act. It doesn't set a minimum wage, but it limits working hours and requires that bakeries be kept clean. Pretty quickly, the law is ruled unconstitutional by the Supreme Court. The logic is that people have a right to enter into any contracts they want.

RAUCHWAY: This is an interference with the right of individuals to enter into a contract. And that is part of our basic freedom, and the government has no right to abridge that.

KESTENBAUM: At this point, there is basically no way the Supreme Court is going allow anything like a minimum wage. The first time anyone decides to really give it a try is during the Great Depression. Franklin D. Roosevelt is president. He wants to put more money in people's pockets. Here's FDR.

(SOUNDBITE OF SPEECH)

PRESIDENT FRANKLIN DELANO ROOSEVELT: The proposition is simply this: If all employers will act together to shorten hours and to raise wages, we can put people back to work.

KESTENBAUM: FDR wants businesses to do this voluntarily. Remember, the Supreme Court does not like this kind of thing. And Roosevelt's administration comes up with a clever idea. It creates the blue eagle. It's a picture of a blue eagle. FDR says go along with my plan, and you can hang it in your store to show your patriotism. It was a good-looking eagle. Jason Taylor is an economist at Central Michigan University.

JASON TAYLOR: He looks very powerful, spreading his wings.

KESTENBAUM: Not the kind of eagle you want to cross.

TAYLOR: Yeah, no. And it said below it: We do our part. And the idea was that if you're complying with President Roosevelt's plan, you know, you're doing your part.

KESTENBAUM: And if you were not displaying a blue eagle, you were...

TAYLOR: ...you were not doing your part, and Roosevelt said that you should be boycotted.

KESTENBAUM: It was called the National Industrial Recovery Act. Congress passed it in 1933, and a lot of businesses signed up.

UNIDENTIFIED MAN #2: The Gillette Razor Company stands squarely behind the president. We have adopted his voluntary code, and we urge all other employers to do likewise.

KESTENBAUM: Why were businesses so happy to pay higher wages? There was more than patriotism at work here. Businesses were also going to be allowed to form cartels and set prices. At the time, the country was suffering from deflation, and prices and wages were plunging. Not surprisingly, the blue eagle was no match for nine men in robes. Yes, the U.S. Supreme Court unanimously struck down the law. The Supreme Court is not going away, but it turns out, neither is FDR. Again, historian Eric Rauchway.

RAUCHWAY: So, in 1936, Roosevelt is reelected by the biggest landslide in modern history.

KESTENBAUM: It's unbelievable. I look at the numbers, and it's - I'm so used to very close elections. That was 523-8 in the Electoral College.

KESTENBAUM: FDR takes on the Supreme Court. This is that famous moment where he tries to pack the court, tries to pass a law that would let him appoint additional justices. That fails, but one justice basically switches sides. In 1937, the court upholds the right of Washington state to have a minimum wage. And the next year, FDR pushes the Fair Labor Standards Act through Congress, which contains a kind of minimal minimum wage.

(SOUNDBITE OF SPEECH)

ROOSEVELT: After many requests on my part, the Congress passed a Fair Labor Standards Act, what we call the Wages and Hours Bill. That act, applying to products and interstate commerce, ends child labor, sets a floor below wages and a ceiling over the hours of labor.

KESTENBAUM: Eric Rauchway, the historian, says this was more a political victory than an intellectual one, and the nation is divided over it today. David Kestenbaum, NPR News. Transcript provided by NPR, Copyright NPR.